Automated page speed optimizations for fast site performance. Gilbert J. Bradshaw March 16, How do shareholders acquire restricted securities? Shareholders often acquire restricted securities in two ways: Private placement offerings, Regulation D offerings, or employee stock option plans, as compensation for services rendered or in exchange for providing start-up capital to the Company.
The shareholder buys securities from a controlling person or affiliate. Rule Non-Affiliate Conditions For a non-affiliate to sell their restricted stock on the public marketplace using Rule , they must meet these conditions: The shareholder must satisfy the holding period by holding the shares for a certain period of time. Securities that are not registered or that are labeled as "restricted" or "controlled" generally cannot be sold or resold on the public market.
However, there are several exemptions for the resale of restricted securities, and Rule is the most commonly used. As an employee, small business owner, or investor, you may own some "restricted" or "control" securities.
These are usually given in the following situations:. Rule is important because it provides an exemption under which you can sell these securities in the public stock market without registering them with the SEC. Investors and shareholders in private offerings have the opportunity to resell their restricted securities, which makes them more valuable than if you held onto them indefinitely.
To sell your restricted or control securities to the public under Rule , you must meet five conditions. Note that although Rule is not the only way to sell such securities, it is the most commonly used and provides a "safe harbor" for sellers. If you are not and have not been an affiliate of the issuing company, and you have held the securities for more than 12 months, you can sell the securities in the public market without restrictions or needing to meet the conditions of Rule If the issuing company is a reporting company, you may sell your restricted securities after 6 months as long as the Current Public Information condition of Rule is met.
The opinion letter must set forth that the facts regarding that Issuer, particular stock and selling shareholder comply with the requirements under Rule Rule only addresses the resale of restricted or control securities, not unrestricted securities or sales directly by an Issuer. Unrestricted securities such as securities that have been registered under the Securities Act may be sold without reference or regard to the Rule.
Control securities are those securities held by an affiliate of the issuing company, and restricted securities are securities acquired in unregistered, private sales from the issuing company or from an affiliate of the Issuer. Rule provides certain conditions that must be met for sales by both affiliates and non-affiliates which conditions vary depending on whether the Issuer of the securities is a reporting or non-reporting Issuer.
The following chart summarizes the Rule requirements:. A voluntary filer is not subject to the Exchange Act reporting requirements, and the longer one-year holding period is applicable. However, the determination of whether the Issuer is reporting or non-reporting is made as of the time of the proposed sale, as is the determination of the other Rule requirements. Among other things, these amendments:. The Commission also adopted amendments to Rule of the Securities Act. Rule governs registered transactions in connection with reclassifications of securities, mergers or consolidations or transfers of assets.
Before Rule was amended, the Commission presumed affiliates of the target entity to be underwriters in any sale of securities received in the transaction. The amendments to Rules and are effective on February 15, Rule d requires restricted securities to be held for a period of time before they can be resold.
Under the amendments, if the issuer of the securities has been subject to the reporting requirements of Section 13 or 15 d of the Exchange Act for at least 90 days, then the restricted securities of such an issuer are subject to a six-month holding period. Restricted securities of issuers that are not subject to the Exchange Act reporting requirements, however, must be held for one year before any public resale.
The amendments substantially reduce the restrictions applicable to resales of securities by a person who is not an affiliate of the issuer and has not been an affiliate for three months prior to the sale of the securities. Under the amendments, a non-affiliate that has held restricted securities of a reporting issuer for more than six months and less than one year can resell the securities in reliance on Rule , if current information Exchange Act reports is available about the issuer.
After one year, the non-affiliate may freely resell the restricted securities of a reporting issuer without regard to any of the Rule conditions. A non-affiliate of a non-reporting issuer must hold the securities for one year before any public resale.
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